Alexion Takeover Would Be Priciest Since 2008: Real M&A

If Roche Holding AG follows through with a purchase of Alexion Pharmaceuticals Inc., it may face one of the biotechnology industry’s most expensive takeover bills.

Roche is seeking billions of dollars in financing for a potential purchase of the $21 billion orphan-drug maker, people with knowledge of the situation told Bloomberg News last week. Alexion, which makes a treatment for rare blood diseases, could command at least $148 a share, said Piper Jaffray Cos. That would value the Cheshire, Connecticut-based company at 61 times earnings before interest, taxes, depreciation and amortization.

At that price, a deal would be the biotech industry’s richest multiple since Takeda Pharmaceutical Co. paid 137 times Ebitda for Millennium Pharmaceuticals Inc. in 2008, according to data compiled by Bloomberg. Alexion’s draw is its projected revenue growth of 180 percent through 2017, fueled by Soliris, a drug that can cost about $400,000 a year.

“It’s hard to find this level of growth in biotech at this level of revenue,” said David Ferreiro, a New York-based analyst at Oppenheimer Holdings Inc. who sees Alexion fetching $130 to $140 a share. “Everybody knows this is a very valuable asset. It’s just a matter of who’s comfortable with the valuation.”

Roche has never paid such a high multiple of enterprise value to Ebitda, according to data compiled by Bloomberg. The company abandoned a hostile bid for San Diego-based Illumina Inc. last year due to price. Illumina’s shareholders held out for more than the 21.6 times Ebitda that Basel, Switzerland-based Roche said it was offering for the company.

Few Buyers

Ian Somaiya, a New York-based analyst at Piper Jaffray, said Alexion should fetch $148 to $208 a share in a sale. That would give Alexion, whose share price has quadrupled since the end of 2009, an enterprise value of at least $28 billion, or 61 times its Ebitda from the past 12 months. That would be the highest for any biotech deal greater than $1 billion since 2008, data compiled by Bloomberg show.

A takeover of Alexion would be Roche’s largest since 2009, when it bought the rest of Genentech Inc. for $46.8 billion, or 17 times Ebitda, data compiled by Bloomberg show. It’s the biggest biotech deal on record, the data show.

While Alexion is an appealing target, “the issue is the price point,” Somaiya said in a phone interview. “The stock has done phenomenally well, and not many buyers can absorb Alexion’s size.”

Today, Alexion fell 0.8 percent to $107.04, while Roche slipped 1.9 percent.

Daniel Grotzky, a spokesman for Roche, declined to comment on whether it’s planning to bid for Alexion. Irving Adler, a spokesman for Alexion, declined to comment on whether it’s been approached by Roche.

Sanofi’s Playbook

Roche could reduce the upfront cost of a deal by borrowing from Sanofi’s playbook. The Paris-based drugmaker used a contingent value right to seal its about $20 billion purchase of Genzyme Corp. in 2011. The CVR gave Genzyme stockholders rights to payments if one of its experimental drugs meets sales goals. Excluding the CVR, the transaction valued Genzyme at about 43 times Ebitda, data compiled by Bloomberg show.

Large drugmakers such as Roche are trying to revive sales growth. Pharmaceutical companies bigger than $20 billion are forecast to post the largest annual revenue decline in at least a decade in 2013 after patent expirations opened the door to generic versions of top-selling drugs, according to analysts’ estimates compiled by Bloomberg.

‘Patent Cliff’

“There are plenty of pharma companies still searching for their answer to the patent cliff in terms of how to rejuvenate top-line growth,” Steven Silver, a New York-based equity analyst at Standard & Poor’s, said in a phone interview. “Alexion’s growth is certainly still above average, and it’s a very attractive area to be in.”

Though Roche’s own growth is projected to outpace some of its closest rivals, acquiring Alexion could fill a hole for the Swiss drugmaker. Roche has struggled to bring projects outside its cancer business to fruition and said July 10 that it suspended testing of its most advanced experimental diabetes treatment because of safety concerns. Roche had thought the drug could have peak sales of 2 billion Swiss francs ($2.1 billion) to 5 billion francs.

Soliris, Alexion’s only approved product, treats two rare blood diseases affecting fewer than 20,000 people and is among the world’s most expensive medicines. As an orphan drug, designed for a small number of patients with few treatment options, it receives enhanced marketing exclusivity and is usually covered by insurers, making it valuable to potential acquirers.

‘Not Cheap’

“The deal is not cheap,” Yaron Werber and Andrew Baum, analysts at Citigroup Inc., said in a July 12 report about Roche potentially buying Alexion. But “diversifying into orphan drugs is a solid strategy for Roche as Soliris is a solid drug and has little competition.”

Robert W. Baird & Co.’s Christopher Raymond agreed that Alexion has a lot to offer for buyers.

Orphan drugs “are very much in fashion,” the Chicago-based analyst said in a phone interview. “The business model has proven to be impervious to global market forces. It’s also high value in terms of amount of dollars you can command per patient per year.”